Lux Lucet

“In his book…A Christian View of Men and Things [Gordon] Clark comments that the growth of government is the greatest tragedy of the twentieth century.”

    – John W. Robbins, “The Growth of Government in the United States”

The thesis underlying this series of posts and reflected in the series’ titles, is that the 2008 financial crisis never really went away. Yes, the stock market has recovered and gone on to hit new highs. Yes, we don’t see massive layoffs taking place or people standing in bread lines. So the visual cues that we expect in a financial crisis are not present.

Further, we see announcements in the press stating how strong the American economy is, and various statistics are brought forth to prove this, perhaps most notably a low unemployment rate.

Donald Trump has been very aggressive at touting the strength of the American economy. The day after the worst stock market plunge of 2019, the President tweeted, “The United States is now, by far, the Biggest, Strongest and Most Powerful Economy in the World, it is not even close! As other falter, we will only get stronger. Consumers are in the best shape ever, plenty of cash. Business Optimism is at an All Time High!”

Now at least some of this is likely true. Objectively speaking, America has the world’s largest economy as measured by Gross Domestic Product (GDP). But there are reasons to doubt some of the President’s other claims.

For example, while the President says that consumers are in the best shape ever, the very next day CNBC ran a story announcing that Americans are more indebted than ever before. This hardly supports the President’s claim that consumers are in the best shape ever.

And if the economy is doing so well, why, according to the Bureau of Labor Statistics, has the labor force participation rate never recovered to the pre-crisis level?

If everything is so great, why has President Trump publicly called for more Quantitative Easing (QE) and interest rate cuts? QE is a radical money printing scheme which was used by the Federal Reserve as an emergency measure to save the financial system in the 2008 crisis. Since QE is an emergency measure that was used to stave off financial collapse, why is it that, on the one hand, President Trump is telling us that the economy is doing great under his leadership, but, on the other hand, is calling for emergency QE as if the financial system were collapsing again?

Another item contradicting the official narrative that everything is awesome with the economy is the calls for interest rate cuts. In the link above, Trump was calling for the Fed to lower interest rates. In a strong economy, demand for money is reflected in rising, not falling, interest rates. If the President is calling for the Fed to lower interest rates, by implication, he is saying the economy is stalling out, not charging ahead.

In the opinion of this writer, the struggles of ordinary Americans to find work and to make ends meet are reflective of a financial system in disarray, not one experiencing rapid growth.

Further, it is my view that the economic problems roiling America stem from the fact the American government and financial elite have refused for more than a decade now to deal honestly with the serious financial crisis facing the United States. At the root of the problem is the Fed, America’s central bank. Central banking is inherently immoral, unchristian, and destructive of the legitimate interests of the great bulk of the American people.

One of the great evils that flows from central banking is another great plague of modern society: Big Government.

In the quote at the top of this page, John Robbins noted that Gordon Clark thought that the growth of government in the United States was the greatest tragedy of the twentieth century. Considering all the evils of that century, Clark’s statement is remarkable indeed.

It is the contention of this author that America is going bankrupt as a result of big government, a great evil which itself is the child of the prior great evil of central banking. Yet there is no serious attempt on the part of elected officials of either party to address this situation.

The Welfare/Warfare State

It was Murray N. Rothbard who coined the term “welfare/warfare state” to describe the system of government currently practiced in the United States, and it’s hard to argue with his assessment in this case. Writing in Forbes, Ralph Benko notes, “America has become what this writer has termed ‘a warfare/welfare state.’ Almost two-thirds of the federal budget goes to the military, including veterans care, and to entitlements such as Medicare and Medicaid.”

It is this welfare/warfare state that has put America in the unenviable position of having an official national debt of around $22 trillion, the highest in the nation’s history.

Now there was a time not so very long ago when Republicans would at least give lip-service to concerns about runaway government spending. Not anymore.

For example, the House recently passed a budget deal agreed upon by both President Trump and Nancy Pelosi to place no new debt limits on the federal government until July 31, 2021, effectively giving Washington a credit card with no credit limit.

To the credit of the Republicans, there were some in the party who objected. For example, Rep. Thomas Massie (R-KY) proposed an amendment to the bill to rename it “A bill to Kick the Can Down the Road, and for Other Purposes.” His proposal was defeated in the House by a vote of 384 to 47. Of the 47 voting in support of his amendment, 41 were Republicans.

But by and large, in the opinion of most Congressional Republicans and Democrats, and of Donald Trump, there should be no limit to federal spending no matter what this crushing debt – two-thirds of which goes to fund the military (warfare) and entitlement programs (welfare) – does to the value of the dollar and to the economic prospects of the American people.

Commenting on the destructive effects of America’s debt addition, Ron Paul wrote,

The welfare state is fueled by the Federal Reserve’s easy money policies, which are also responsible for the boom-and-bust cycle that plagues our economy.
The Federal Reserve’s policies do not just distort our economy, they also distort our values, as the Fed’s dollar depreciation causes individuals to forgo savings and hard work in favor of immediate gratification.
This has helped create an explosion of business and individual debt. There has been a proliferation of bubbles, including in credit card debt, auto loans, and student loans. There is even a new housing bubble.

So just what is the relationship between central banking and big government. In short it is this, central banking allows politicians to hide the cost of the profligacy.

The scam works like this. Congress proposes budgets that far exceed tax revenues and presidents sign them into law. In order to make up for the tax shortfall – just to give you an idea about how massive these shortfalls have become, the Congressional Budget Office (CBO) estimates the deficit for fiscal year 2019 will be $896 Billion – the government issues treasury bonds, which are bought at auction by large banks called primary dealers. The Fed then purchases some of these bonds from the primary dealers with money it creates out of thin air.

The Fed’s power to create money out of thin air to purchase bonds – this is sometimes called “monetizing the debt” – allows big spending politicians to spend away without having to raise taxes, always an unpopular move.

But does this mean that American don’t bear the cost of big government? Of course not! Instead of being taxed directly for our government’s spendthrift ways, we are taxed indirectly through inflation.

Yet very few people are able to connect the higher and higher prices they pay for everything with the profligate politicians in Washington. This is exactly what the politicians want. For it allows them to spend and spend and spend, but never have to face angry voters who have had their taxes raised or who connect the dots and figure out that massive overspending by Congress lies at the root of the ever shrinking purchasing power of their dollars.

Debt, It’s Not Just a Governmental Problem

It’s not just federal debt that exploding either. Individual debt and corporate debt are also at record levels.

As was mentioned above, consumers now have a records debt of $38,000 on average. This debt, exclusive of home mortgages, totals $4 trillion. According to this article in the Wall Street Journal, mortgage debt is also at records levels which total $9.4 trillion. So Americans, already buried in personal debt, are also buried again in mortgage debt, with the total of the two reaching over $13.4 trillion.

Incredibly Michael Feroli, chief U.S. economist at JPMorgan Chase, is quoted in the Wall Street Journal article as saying “The big picture is that when you look at mortgages, which is the biggest piece of [household debt], it still looks pretty healthy.”

Corporate debt is also exploding. According to Yahoo, American corporations hold over $9 trillion of debt on their books.

Debt Must Increase

One little appreciated fact about our financial system in America, and in all other nations as well, is that it is debt-based. Dollars, which used to represent a weight of gold or silver, now represent a unit of debt. This is why the dollar bills in your pocket say “Federal Reserve Note.” In the world of finance, a note is a unit of debt.

Our debt-based system requires more and more debt to sustain it. Why is this? Compound interest. In order to pay the interest on the existing debt, new currency must be brought into existence. And since dollars are units of debt, this means that additional debt must be added to the system just to create these dollars to pay the interest on the existing debt. And not only that, but the rate of debt creation must occur at a faster and faster pace.

Not only is the debt of America growing, but it must grow, and grow at a faster and faster pace just to keep the system going. This is not a matter of opinion, but of mathematical, logical certainty.

Not only do debt-based systems such as ours allow for politicians to increase debt by spending on the welfare/warfare state, it actually requires them to do so. If they do not continually expand the debt at a faster and faster pace, the interest on the existing debt cannot be repaid and the system implodes.

At some point, it will become impossible for governments, corporations and private individuals to expand their debt. When that day comes, the system will be unable to continue and we experience the biggest financial crisis of all time.

Application for Christians

So what are Christians to make of all this?

One applications for Christians is to limit and, if possible, eliminate all debt. If this sounds odd to you, consider what Scripture says about debt. Do the Scriptures ever praise debt as if it were a good thing? Far from it. As Proverbs teaches us, “The rich rules over the poor, and the borrower is servant to the lender.

As Christians, we have a responsibility before God to be good stewards of what he has entrusted to us, including our money. This is not to say that debt is always and everywhere wrong, but we should use it, if we use it at all, prudently.

Second, the evil of central banking has birthed the twin evils of the welfare/warfare state. Like some athlete on steroids or human growth hormones, so too is the federal government become a grotesque monstrosity. But just as steroid use can offer short-term benefits but cause long-term health problems, so too will our governments fiscal irresponsibility come home to roost. Further, the culture of debt at the federal level, has leaked down into state and local governments, to corporations and to private individuals. This will end badly.

Third, as Christians we can face the coming financial collapse of America, not with fear, but with boldness. Not because we’re anything special in ourselves, but because we have the right man on our side. Jesus promised that if we seek first the kingdom of God and his righteousness, he will provide us with the things we need in this world, even when everything is falling apart around us.

Fourth, Christians have an obligation to get prepared. Part of this is limiting or eliminating our debts, but there’s more to getting prepared for financial hard times than this. Lord willing, I hope to discuss this in more detail in a future post, but for now I will leave it at that.